Advanced Search
MyIDEAS: Login to save this paper or follow this series

Cross-sectional Tobin's Q

Contents:

Author Info

  • Frederico Belo
  • Chen Xue
  • Lu Zhang
Registered author(s):

Abstract

The neoclassical investment model matches cross-sectional asset prices both in first differences and in levels. With ten book-to-market deciles as the testing portfolios, the investment model largely matches the Tobin’s Q spread and the average return spread across the extreme deciles. The parameter estimates imply low adjustment costs around 1.7% of sales. The model’s fit results from three aspects of our econometric strategy: (i) We test the model at the portfolio level to alleviate the impact of measurement errors; (ii) we match the first moment to mitigate the impact of temporal misalignment between asset prices and investment; and (iii) we allow for nonlinear marginal costs of investment. Our evidence suggests that any differences between the intrinsic value of equity and the market value of equity tend to dissipate in the long run.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.nber.org/papers/w16336.pdf
Download Restriction: no

Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16336.

as in new window
Length:
Date of creation: Sep 2010
Date of revision:
Handle: RePEc:nbr:nberwo:16336

Note: AP CF
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Email:
Web page: http://www.nber.org
More information through EDIRC

Related research

Keywords:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Joao Gomes & Amir Yaron & Lu Zhang, 2002. "Asset Pricing Implications of Firms' Financing Constraints," NBER Working Papers 9365, National Bureau of Economic Research, Inc.
  2. Lubos PÁstor & Veronesi Pietro, 2003. "Stock Valuation and Learning about Profitability," Journal of Finance, American Finance Association, American Finance Association, vol. 58(5), pages 1749-1790, October.
  3. Pástor, Luboš & Veronesi, Pietro, 2004. "Was There A Nasdaq Bubble in the Late 1990s?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4485, C.E.P.R. Discussion Papers.
  4. Pástor, Luboš & Veronesi, Pietro, 2005. "Technological Revolutions and Stock Prices," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5428, C.E.P.R. Discussion Papers.
  5. Urban Jermann, 2006. "The Equity Premium Implied by Production," NBER Working Papers 12487, National Bureau of Economic Research, Inc.
  6. Albuquerque, Rui & Wang, Neng, 2005. "Agency Conflicts, Investment and Asset Pricing," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4955, C.E.P.R. Discussion Papers.
  7. Monika Merz & Eran Yashiv, 2005. "Labor and the market value of the firm," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 19891, London School of Economics and Political Science, LSE Library.
  8. Ilya A. Strebulaev, 2007. "Do Tests of Capital Structure Theory Mean What They Say?," Journal of Finance, American Finance Association, American Finance Association, vol. 62(4), pages 1747-1787, 08.
  9. Evgeny Lyandres & Le Sun & Lu Zhang, 2008. "The New Issues Puzzle: Testing the Investment-Based Explanation," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 21(6), pages 2825-2855, November.
  10. Dmitry Livdan & Horacio Sapriza & Lu Zhang, 2009. "Financially Constrained Stock Returns," Journal of Finance, American Finance Association, American Finance Association, vol. 64(4), pages 1827-1862, 08.
  11. Jin Ginger Wu & Lu Zhang & X. Frank Zhang, 2007. "Understanding the Accrual Anomaly," NBER Working Papers 13525, National Bureau of Economic Research, Inc.
  12. Xiaoji Lin & Santiago Bazdrech & Frederico Belo, 2009. "Labor Hiring, Investment and Stock Return Predictability in the Cross Section," FMG Discussion Papers, Financial Markets Group dp628, Financial Markets Group.
  13. Randolph B. Cohen & Christopher Polk & Tuomo Vuolteenaho, 2003. "The Value Spread," Journal of Finance, American Finance Association, American Finance Association, vol. 58(2), pages 609-642, 04.
  14. Patrick Bolton & Hui Chen & Neng Wang, 2009. "A Unified Theory of Tobin's q, Corporate Investment, Financing, and Risk Management," NBER Working Papers 14845, National Bureau of Economic Research, Inc.
  15. Joao Gomes & Leonid Kogan & Lu Zhang, 2003. "Equilibrium Cross Section of Returns," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 111(4), pages 693-732, August.
  16. Peter M. Demarzo & Michael J. Fishman & Zhiguo He & Neng Wang, 2012. "Dynamic Agency and the q Theory of Investment," Journal of Finance, American Finance Association, American Finance Association, vol. 67(6), pages 2295-2340, December.
  17. Lu Zhang, 2005. "The Value Premium," Journal of Finance, American Finance Association, American Finance Association, vol. 60(1), pages 67-103, 02.
  18. Gibbons, Michael R & Ross, Stephen A & Shanken, Jay, 1989. "A Test of the Efficiency of a Given Portfolio," Econometrica, Econometric Society, Econometric Society, vol. 57(5), pages 1121-52, September.
  19. Frankel, Richard & Lee, Charles M. C., 1998. "Accounting valuation, market expectation, and cross-sectional stock returns," Journal of Accounting and Economics, Elsevier, Elsevier, vol. 25(3), pages 283-319, June.
  20. Laura Xiaolei Liu & Toni M. Whited & Lu Zhang, 2009. "Investment-Based Expected Stock Returns," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 117(6), pages 1105-1139, December.
  21. Lorenzo Garlappi & Hong Yan, 2011. "Financial Distress and the Cross‐section of Equity Returns," Journal of Finance, American Finance Association, American Finance Association, vol. 66(3), pages 789-822, 06.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:16336. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.